There's a lot of doom and gloom being spread in the media about the housing market and overall turbulent economy. But, if you're in a position to take advantage of falling housing prices, getting a loan and moving forward with a real estate purchase could, in the long run, add strength to your financial portfolio.
However, the rules for getting a loan have changed. Being aware of how this affects you before you find the home that you love, can help you ensure that you're able to buy it. Even though bidding wars aren't as prevalent as they once were, timing and being ready to initiate a well-planned offer are important to the successful closing of a home.
I spoke with New York real estate attorney, Edward Mermelstein, who specializes in connecting clients to real estate opportunities in the US, Russia, Ukraine, and other emerging markets about buyer advice for qualifying for a loan and how not to end up with a property that's likely to be upside down.
Appraisal is a must. "First and foremost, make sure that the property appraises properly," says Mermelstein. The appraisal determines the true market value of the home. It also shows discrepancies such as if the seller lists an erroneous square footage, the appraisal should reflect the correct figure (which in some cases is less than advertised). Banks, especially these days, use the appraisal to make sure the home appraises at or higher than the requested loan thereby lowering the bank's risk if you default on the loan.
Save, save, save for that down payment. Everyone knows that tighter restrictions are being called for in the real estate lending market, but what that means for each person is different. "The reality of what was taking place about a year ago is totally different from what it is today," he says.
Mermelstein says understanding the bank requirements is vital. Buyers need to know that shopping for a home needs to fit their budget, rather than finding a wonderful place they'd like to live in and then attempting to leverage beyond their means. "Pretty much no income verification doesn't exist anymore. You can't expect to get a 95 percent or 100 percent mortgage on your property -- that's also gone," says Mermelstein.
Check your credit score. "If you don't have a very good credit score, it's going to be difficult in terms of borrowing. Be prepared to give enough information to document your employment and taxes," says Mermelstein. He adds, "Tax returns are seldom, these days, taken from the borrower; the banks will generally request the tax return themselves."
Set contingencies. Making sure that the appraisal comes in at the right price and making sure that you can get financing are two critical aspects of buying a home. Even with a loan approval, there are other factors that can lead to the denial/approval of a loan. Contingencies help to make sure that you don't get locked into a legally-binding contract to purchase a home that you can't get financing for or that doesn't meet the expected appraisal. There are numerous other contingencies that can be set; be sure to discuss them with your real estate agent.
Prepare for worst case scenario. Many people use mortgage brokers to arrange their loans but some buyers are going straight to the bank. Mermelstein says if you do that, be sure to stick with the more solid banks "because later on if they do get taken over by somebody or do have financial issues, your loan may become difficult to work on."
He says if you end up in a situation where you need to renegotiate your loan, having your loan with a less-known bank could equate to trouble. "It's much easier to negotiate a loan if your lender still owns the loan. Once it goes into a pool of other loans it becomes close to impossible to negotiate," says Mermelstein.
Always go into the real estate market with the desire to learn as much as you can. Even those who have bought and sold multiple properties frequently discover some aspect of the transaction that causes them to research, talk to experts, and grow their knowledge. Phoebe Chongchua Copyright 2009 Realty Times. All Rights Reserved.
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First Time Homebuyers Credit
The first-time homebuyer credit is a new tax credit included in the recently enacted Housing and Economic Recovery Act of 2008. For homes purchased in 2008, the credit operates like an interest-free loan because it must be repaid over a 15-year period.
The credit was expanded in 2009 for homes purchased in 2009, increasing the amount of the credit and eliminating the requirement to repay the credit, unless the home ceases to be your principal residence within the 36-month period beginning on the purchase date.
The credit is 10 percent of the purchase price of the home, with a maximum available credit of $7,500 ($8,000 if you purchased your home in 2009) for either a single taxpayer or a married couple filing a joint return, but only half of that amount for married persons filing separate returns. The full credit is available for homes costing $75,000 or more ($80,000 if purchased after Dec. 31, 2008, and before Dec. 1, 2009).
If you meet all first-time homebuyer eligibility requirements, see Form 5405, for more details:
Form 5405
For further detail visit:
http://www.irs.gov/